Erna Corp. has 6 million shares of common stock outstanding. The current share price is $78, and the book value per share is $5. Erna Corp. also has two bond issues outstanding. The first bond issue has a face value of $65 million, has a coupon of 7 percent, and sells for 98 percent of par. The second issue has a face value of $35 million, has a coupon of 8 percent, and sells for 106 percent of par. The first issue matures in 22 years, the second in 5 years.
a. What are Erna’s capital structure weights on a book value basis? (Round your answer to 4 decimal places. (e.g., 32.1616)) Equity/Value
Debt/Value
b. What are Erna’s capital structure weights on a market value basis? (Round your answer to 4 decimal places. (e.g., 32.1616))
Equity/Value
Debt/Value
c. Which are more relevant, the book or market value weights?